Partial modification of the General Taxation Law

Law 34/2015 of 21 September on the partial amendment of Law 58/2003 of 17 December regarding General Taxation (hereafter GTL), is one of the major reforms of the GTL since its entry into force, and completes the Tax reform process, that began in January 2015 with the implementation of the respective reforms of Personal Income Tax, Corporation Tax, VAT and Excise Duties.

The reform will have effect from 12 October 2015, except for the amendments made on formal tax obligations and tax infringement for violating accounting and registration obligations respectively, which will come into force on 1 January 2017, and the provisions related to the eradication of smuggling whose date of implementation will be within three months of its publication in the Official State Gazette.

In overall terms, the reform´s aims are:

• prevention of tax fraud thus, in principle, encouraging voluntary compliance with tax obligations;
• increase the efficiency of the administration in tax enforcement – The increase of legal certainty for both taxpayers and the Tax Administration with the consequent reduction in litigation.

Among the many amendments implemented, we believe that the following must be emphasized due to its importance:

• “The non-application of the Administration´s right to verify and investigate” (Articles 66 bis and 115 GTL).

The new Law makes an express distinction between the right of the Administration to settle and the right to verify and investigate.

Thus, the right to settle the tax debt will continue to lapse at four years. However, following the reform, the right to verify and investigate events, business, transactions, etc. that have been carried out over the years in which the Tax Administration´s right to settle has lapsed will take effect with regard to the right of the Tax Administration to settle this issue, a right which will become indefeasible.

Thus, the power to verify is expanded, and the right to consult obligations from previous tax periods is confirmed, though only where they are necessary and take effect in tax periods which have not lapsed.

Nevertheless, the applicability of the right of the Administration to verify and investigate has a cavear as regards tax credits (base, quotas paid or waiting to be paid, deductions applied or waiting to be applied). In relation to these credits, the relevant standards applies a maximum period of ten years for their verification.

• “Advertisement of situations of relevant non-compliance with tax obligations” (Article 95a GTL)

For the first time, the Law regulates the possibility of the Administration to publish the lists of debtors (the controversial “default list”) to the Treasury, regarding unpaid debts and sanctions in excess of €1,000,000 and for which the voluntary payment period has elapsed. This excludes debts which have been deferred or suspended.

The reference date in order to determine rating of “the defaulter” will be the position on 31 December of each year, except 2015, whose date is 31 July 2015, with the list being published in the last quarter of 2015.

However, prior to publication, the Administration must notify the affected parties of this situation and give them a period of ten days to make submissions in relation only in relation to their lack of compliance with the legal requirements that enable to publication of said list.

The list will be published for three months and the only way to challenge this action of the Administration will be via the judicial route.

• “Period of action for tax inspections” (Article 150 GTL)

This modification is characterised by the intention of the legislator to increase legal certainty by dispensing with delays and disruptions of the tax inspection procedure which occur where the taxpayer requests an adjournment in order to comply with the formalities and due to the waiting period for data requested from other Administrations.

The reform extends the general term of inspection to 18 months (before the reform, the term was 12 months, which could be extended to 24 in certain circumstances) and with the possibility to extend the term to 27 months in the following circumstances:

• when the annual turnover of the taxpayer is not less than that required to audit their accounts;
• when the taxpayer is in a group under the tax consolidation regime or when the taxpayer belongs to a group of entities that are being verified.

In the case of related persons or entities, if one of the above circumstances applies, it will determine the extension of the deadline of the others.

Also, the inspection process could be extended by:

• 60 days due to the so-called courtesy days, that it to say when the actions are not carried out at the request of the taxpayer;
• 3 to 6 months due to the late provision of documents by the taxpayer upon the request of the Administration.

• “Alleged infringement in cases of conflict in the application of the standard” (Article 206 bis GTL)

As an instrument in the fight against fraud, a new anti-abuse rule is introduced through the creation of a serious tax offence. Under this offence, the re-evaluations conducted through actions which have previously been declared by the Administration, in applying the standard, to be a conflict of interest, will be punishable.

The nature of this infringement is independent of the alleged infringing conduct, as it will be produced by the subsequent actions of the taxpayer and contrary to existing administrative criteria that would have deemed the action which is subject to regularisation to be abusive.

This infringement has independent nature of the conduct of the presume infringer, as they will be producing by the action of the taxpayer, post and contrary to an existing administrative criteria that would have qualified the action object of regularization as abusive. The assessment of the infringement requires:

• the existence of substantial equality between the regulated act and the act upon which the administrative criteria already exists;
• that the criteria had been made public before the period of the submission of the declaration or the declaration of the regularisation had begun;
• the sanction consists of a monetary fine which, in accordance to the circumstances in the case, is 15% or 50% of the total amount. 

• “Actions and procedures for the application of taxation offences against the Treasury” (Title VI)

This is a new Title that comes after the reform of the Penal Code in 2012, specifically Article 305.5 thereof, which established the possibility that the tax recovery procedure would not remain suspended merely due to the criminal proceedings. It is directly related to one of the objectives of the reform, the prevention of and fight against tax fraud.

Among them includes the new assessment procedure and the procedure of collection of tax debts by the Administration in cases where a criminal investigation is initiated in relation to said debts.

After the reform, in cases of the existence of a prima facie case against the Treasury, without prejudice to the relevant body that has invoked the criminal case or the Public Prosecutor, the Administration will continue with the process and will carry out the necessary settlements which arise.

Nevertheless, exceptionally, the standard provides that the Administration will not be able to conduct the settlement where:

• the processing of the administrative settlement may invoke the statute of limitations of the criminal case;
• as a result of the tax investigation or verification, the exact amount of the settlement could not be determined or attributed to a specific taxpayer;
• the existence of the administrative settlement would prejudice the investigation or verification of the fraud in any way.

For such offences, the standard establishes voluntary regulation as a reason for the referral of the case to the criminal jurisdiction wherever, alongside the acknowledgement, the debt is paid.

If ultimately there is a guilty verdict with regard to the crime, it will not be possible to impose an administrative penalty for the same acts which have already been prosecuted. However, on the contrary, a new disciplinary administrative procedure may be initiated on the basis of the facts that the court considers proven.

This new procedure may be applied to tax procedures initiated prior to 12 October 2015 in which there is evidence of an offence, however the referral to the relevant judicial body or Public Prosecutor has not yet been carried out.